Evolution of the U.S. Tax System: Changes from 2020 to 2025

The U.S. tax system has experienced significant transformations between 2020 and 2025, driven by legislative reforms, economic recovery initiatives, technological advancements, and responses to natural disasters. These changes have reshaped tax administration, compliance, and revenue collection, impacting individuals, businesses, and the federal budget. This article provides a detailed examination of the key developments, supported by data from government sources, a summary table, and a chart illustrating federal revenue trends.

Major Developments in the U.S. Tax System

The period from 2020 to 2025 was marked by unprecedented challenges, including the COVID-19 pandemic, economic fluctuations, and policy debates over tax fairness and enforcement. Below is a comprehensive overview of the most significant changes, organized chronologically and by policy area.

2020–2021: Pandemic-Related Tax Relief and Economic Support

The COVID-19 pandemic prompted sweeping tax relief measures to support individuals and businesses. In 2020, the CARES Act authorized the first round of Economic Impact Payments, delivering up to $1,200 per eligible individual. This was followed by the Consolidated Appropriations Act in December 2020, which provided a second round of payments worth up to $600. In 2021, the American Rescue Plan Act (ARPA), signed into law on March 11, 2021, introduced a third round of payments, offering up to $1,400 per individual and their dependents, totaling $391 billion distributed to 165 million taxpayers.

ARPA also expanded the Child Tax Credit (CTC) for 2021, increasing the credit to $3,600 for children under 6 and $3,000 for children aged 6–17, with full refundability. This expansion allowed monthly advance payments from July to December 2021, benefiting 61 million children and reducing child poverty by an estimated 30%. The Earned Income Tax Credit (EITC) was enhanced for low-income workers without dependents, raising the maximum credit to $1,502 and expanding eligibility to younger and older workers. Additionally, the IRS extended the 2020 tax filing deadline to May 17, 2021, and processed 153.5 million individual returns in 2021, reporting $14.7 trillion in Adjusted Gross Income (AGI).

Other relief measures included temporary deductions for charitable contributions, a suspension of certain tax penalties, and expanded unemployment benefits, which were partially tax-exempt for 2020. These policies aimed to stabilize household finances and stimulate economic recovery during a period of widespread unemployment and business closures.

2022: Inflation Reduction Act and IRS Modernization

The Inflation Reduction Act (IRA), enacted on August 16, 2022, marked a significant overhaul of tax policy and IRS operations. The legislation allocated $80 billion over 10 years to modernize the IRS, with funds directed toward hiring 87,000 new employees, upgrading technology, and strengthening enforcement against high-income tax evaders. The Congressional Budget Office (CBO) estimates that these investments will generate $851 billion in additional revenue by 2032 by closing the tax gap, which was $688 billion annually in 2020.

The IRA introduced a 15% corporate minimum tax for companies with average annual profits exceeding $1 billion, effective for tax years beginning after December 31, 2022. This measure targeted approximately 150 corporations, ensuring they pay a baseline tax rate despite deductions or credits. Additionally, the IRA imposed a 1% excise tax on corporate stock buybacks, effective from 2023, to discourage wealth concentration and raise revenue. The legislation also included tax incentives for clean energy, such as credits for electric vehicles and renewable energy production, aligning tax policy with environmental goals.

In 2022, the IRS processed 144.1 million individual returns, with 94% (135.4 million) filed electronically, reflecting ongoing efforts to digitize tax administration. The agency also launched the Direct File pilot program, allowing taxpayers in select states to file simple returns directly with the IRS for free, bypassing commercial tax software.

2023–2024: Enhanced Compliance and Digital Transformation

Between 2023 and 2024, the IRS continued to prioritize compliance and technological upgrades. The agency implemented new reporting requirements for Form 1099-K, used by third-party payment platforms like PayPal and Venmo. For tax year 2024, taxpayers receiving more than $5,000 in payments will receive a Form 1099-K in January 2025, down from the previous $20,000 threshold. This change aims to improve reporting accuracy for gig economy workers and small businesses, with the IRS estimating an additional $8 billion in annual revenue from improved compliance.

The IRS expanded its online services, including the Individual Online Account, which allows taxpayers to view balances, make payments, and access tax records. By fiscal year 2024, 96% of individual returns were filed electronically, and the IRS processed 152.3 million returns, collecting $2.5 trillion in individual income taxes. The agency also introduced voice bot technology and callback options to reduce wait times, handling 33 million taxpayer calls in 2023.

Legislative efforts in 2023 focused on extending certain TCJA provisions, but no major tax reform was enacted. Instead, the IRS issued annual inflation adjustments, such as those in Revenue Procedure 2023-34, which increased standard deductions and tax brackets by 7.1% for 2024 to account for inflation.

2025: Tax Cuts and Jobs Act Expiration and Disaster Relief

The Tax Cuts and Jobs Act (TCJA) of 2017, which reduced the corporate tax rate from 35% to 21% and lowered individual rates, remains a focal point in 2025. Its individual provisions, including doubled standard deductions and expanded CTC, are set to expire on December 31, 2025. If not extended, tax rates will revert to 2017 levels, increasing taxes for most households. The CBO projects that expiration would raise $4 trillion in revenue over 10 years but could slow economic growth by 0.9% annually. Policymakers are debating whether to extend, modify, or replace these provisions, with discussions ongoing as of April 25, 2025.

In response to Hurricane Helene, which struck on September 25, 2025, the IRS announced relief for affected taxpayers in 12 states, extending deadlines for IRA contributions, HSA payments, and other tax obligations to May 1, 2026. This relief mirrors similar extensions granted during previous disasters, such as Hurricane Ian in 2022.

The IRS also released Revenue Procedure 2024-40 in late 2024, outlining 2025 inflation adjustments. The standard deduction for married couples filing jointly increased to $30,000, and the top tax bracket (37%) applies to incomes above $731,200 for joint filers, affecting returns filed in 2026.

Summary Table: Key Tax System Changes (2020–2025)

Year	Legislation/Event	Key Changes	Impact
2020–2021	CARES Act, ARPA	Stimulus payments ($1,200–$1,400), CTC ($3,600), EITC expansion	$391B distributed, 30% poverty reduction
2022	Inflation Reduction Act	$80B for IRS, 15% corporate tax, 1% buyback tax	$851B revenue projected by 2032
2023–2024	IRS Modernization	96% e-filing, 1099-K at $5,000, Direct File pilot	$8B annual revenue from compliance
2025	TCJA Expiration	Potential rate increases, $4T revenue	Economic growth impact debated
2025	Hurricane Helene Relief	Extended IRA/HSA deadlines to May 2026	Support for 12 states

Federal Revenue Trends (2020–2024)

The chart below illustrates federal revenue from individual income taxes, the largest revenue source, compared to total federal revenue, based on fiscal year data from the U.S. Treasury.

Sources